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Depreciation guidelines enable accountants to understand the importance of depreciable assets in operating activities and depreciation methods as well as the regulatory relevance of bookkeeping and financial reporting. Depreciating an asset means allocating a fixed asset's cost over several years to match revenue the underlying resource will produce over time.

Depreciable Assets

Depreciating an asset means allocating its value over several years, a time frame finance people call "useful life" or "operating life." Only fixed assets -- also known as capital resources or tangible assets -- are subject to depreciation. Examples run the gamut from computer hardware and factories to cars, equipment, production machinery and office light-duty gear. Real property also counts in the depreciable resources category -- except land, which typically doesn't lose value over time. Accountants generally classify depreciable assets in the property, plant and equipment, or PPE, category.

Methods

To depreciate a fixed asset, a company may use either the accelerated method or the straight-line method. The Internal Revenue Service -- along with accounting regulators and states' fiscal authorities -- have approved both methods of cost allocation. Under the straight-line method, the depreciation amount is the same throughout an asset's useful life. For example, if machinery costs $50,000 and a corporate owner intends to depreciate it over 10 years, the annual cost allocation over the next decade is $5,000. The accelerated method calls for higher depreciation amounts in earlier periods and lower values in later years. To illustrate, an organization purchases an automobile valued at $30,000 and wants to depreciate it under a 60-30-10 cost-allocation method. As a result, the depreciation amounts for the next three years equal $18,000, or $30,000 times 60 percent; $9,000, or $30,000 times 30 percent; and $3,000, or $30,000 times 10 percent.

Bookkeeping

Accounting rules -- such as generally accepted accounting principles and international financial reporting standards -- tell companies how to record depreciation amounts at the end of a given period, such as a month or fiscal quarter. To allocate the cost of a fixed asset, a corporate bookkeeper debits the depreciation expense and credits the accumulated depreciation account.

Financial Reporting

Depreciation entries touch on various financial statements. Depreciation expense is integral to a statement of profit and loss, also known as an income statement or report on income. Accumulated depreciation is part of a statement of financial position, which is the other name for a balance sheet or report on financial condition. For a business, depreciation is a non-cash charge because it doesn't dole out money for it the way it does for such costs as rent, transportation and salaries.

About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.